Question

If the Fed decreases the quantity of money in circulation, interest rates _____, investmentspending _____, and the aggregate demand curve shifts to the _____.

A) decrease; increases; right
B) decrease; decreases; left
C) increase; decreases; left
D) increase; decreases; right

Answer 1

C) increase; decreases; left

Step-by-step explanation:

If the Fed decreases quantity of money in circulation, interest rate increases because banks will have less money to trade. This can also be as a result of government fixing interest rate to suck up excess money in circulation. Investment spending decreases because the cost of capital has increased. Lastly, since there is less money in circulation, demand falls, and aggregate demand curve shifts to the left.